Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider ALLETE Inc (NYSE:ALE) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
ALLETE Inc (NYSE:ALE) shareholders have witnessed an increase in hedge fund sentiment lately. ALE was in 25 hedge funds’ portfolios at the end of December. There were 22 hedge funds in our database with ALE positions at the end of the previous quarter. Our calculations also showed that ALE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the latest hedge fund action surrounding ALLETE Inc (NYSE:ALE).
How have hedgies been trading ALLETE Inc (NYSE:ALE)?
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. By comparison, 18 hedge funds held shares or bullish call options in ALE a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in ALLETE Inc (NYSE:ALE) was held by Renaissance Technologies, which reported holding $66.3 million worth of stock at the end of September. It was followed by Polaris Capital Management with a $54 million position. Other investors bullish on the company included AQR Capital Management, GLG Partners, and ExodusPoint Capital. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to ALLETE Inc (NYSE:ALE), around 3.25% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, dishing out 2.22 percent of its 13F equity portfolio to ALE.
As one would reasonably expect, key hedge funds have jumped into ALLETE Inc (NYSE:ALE) headfirst. Blackstart Capital, managed by Brian Olson, Baehyun Sung, and Jamie Waters, assembled the most valuable position in ALLETE Inc (NYSE:ALE). Blackstart Capital had $7.4 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $3.7 million investment in the stock during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Peter Muller’s PDT Partners, and Matthew Tewksbury’s Stevens Capital Management.
Let’s also examine hedge fund activity in other stocks similar to ALLETE Inc (NYSE:ALE). We will take a look at Affiliated Managers Group, Inc. (NYSE:AMG), LogMeIn Inc (NASDAQ:LOGM), FTI Consulting, Inc. (NYSE:FCN), and Ollie’s Bargain Outlet Holdings Inc (NASDAQ:OLLI). This group of stocks’ market valuations resemble ALE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMG | 38 | 548063 | 15 |
| LOGM | 31 | 504016 | -1 |
| FCN | 21 | 164212 | 0 |
| OLLI | 28 | 170863 | 5 |
| Average | 29.5 | 346789 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $347 million. That figure was $252 million in ALE’s case. Affiliated Managers Group, Inc. (NYSE:AMG) is the most popular stock in this table. On the other hand FTI Consulting, Inc. (NYSE:FCN) is the least popular one with only 21 bullish hedge fund positions. ALLETE Inc (NYSE:ALE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately ALE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ALE investors were disappointed as the stock returned -28.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
